TOPICS

The triple sin of the great Private Bank

The triple sin of the great Private Bank

By Eric Toussaint - Damien Millet

Since August 2007, US and European banks have been under the spotlight of the present due to the serious crisis they are suffering, and which makes the entire neoliberal system suffer as a whole. Why have banks, now not hesitating to write off bad debts of tens of billions of dollars, have always refused to write off the debts of developing countries?


Since August 2007, US and European banks have been under the spotlight of the present due to the serious crisis they are suffering, and which makes the entire neoliberal system suffer as a whole. The current amount of the devaluation of assets that they were forced to carry out exceeds 200,000 million dollars. Various bank study services and experienced economists estimate that the bill will exceed one trillion dollars (1,000,000,000,000 USD) [1]. (See www.rgemonitor.com/blog/roubini)

How have banks been able to build such an irrational debt mount? Mortgage credit agencies made loans to an already heavily indebted segment of the population. The terms of these high-yield loans (for the lender) are a real deception: the rate is fixed and reasonable for the first two years, but then it is sharply increased. Lenders told clients that the property they acquired with the loan would be valued in a short time given the increase in prices in the real estate sector. The fact of the matter is that the housing bubble finally burst in 2007, and prices began inexorably to decline. As the number of defaults grew considerably, mortgage credit agencies began to find it difficult to repay their debts. To protect themselves, the big banks refuse to make new loans or lend at a much higher interest. But the spiral did not stop there, because the banks had bought a large volume of mortgage loans, and much of it off balance, creating specific companies called Structured Investment Vehicles (SIV), which financed the purchase of high-yield mortgage debt, transformed into securities (CDO, Collateralized Debt Obligations).

As of August 2007, investors stopped buying the commercial papers issued without collateral by the SIVs, the health and credibility of which were badly damaged. Consequently, the SIVs ran out of liquidity to buy the securitized mortgage loans, thus amplifying the crisis. The big banks that had created the SIVs had to make their commitments to prevent them from going bankrupt. While until then the operations of the SIVs did not appear in their accounting (which allowed them to hide the risks assumed), they now have to include the debts of the SIVs in their balance sheets.

Result: Panic on board! In the United States, 84 mortgage credit companies have gone bankrupt or partially ceased their activity between January 1 and August 17, 2007, while in the whole of 2006 there were only 17. In Germany, the IKB bank and the public institution SachsenLB were saved at the last minute. Recently, England had to nationalize the bankrupt Northern Rock bank. On March 13, 2008, the Carlyle Capital Corporation (CCC), whose stated proximity to the Bush clan is well known, collapsed: its debts represented 32 times its equity. The following day, the prestigious US bank Bear Stearns (5th business bank in the US), lacking liquidity, asked the US Federal Reserve (the Fed) for help in obtaining emergency financing. It will be bought by JP Morgan Chase bank at a bargain price.

Various segments of the debt market are flimsy constructions on the way to collapse. In their failure they drag the powerful banks, the hedge funds, the investment funds that had created them. The rescue of private financial institutions is carried out thanks to the massive intervention of public powers. Privatization of profits, socialization of losses are once again the solution to the problem.


But a question arises: Why have banks, now not hesitating to write off bad debts of tens of billions of dollars, have always refused to write off the debts of developing countries? They are showing that this is perfectly possible and absolutely necessary. Let us remember that criminal dictatorships, corrupt regimes, leaders loyal to the great powers and to the creditors are at the origin of the current debts, whose payment the banks demand from these countries. The big banks have ruthlessly lent to regimes as unsavory as those of Mobutu in Zaire, Suharto in Indonesia, the Latin American dictatorships of the 1970-1980s, in addition to the apartheid regime in South Africa. How can they continue to inflict the yoke of debt on peoples that have suffered from dictatorial regimes that they themselves financed? On the legal level, there are numerous odious debts that appear in their accounting books and that should not be paid. But the banks continue to demand their repayment.

Likewise, let us remember that in 1982 the Third World debt crisis was caused by the excessive and unilateral rise in interest rates decided by the Fed. Prior to this, private banks had imposed variable rate loans on already over-indebted countries. , which they were finally unable to cope with. At the moment, history is repeating itself, but this time in the North and in a specific way: over-indebted households in the United States find themselves unable to pay back their variable-term debt because the bubble has burst.

The debt cancellations carried out by the banks agree with all those who, like the CADTM, demand the cancellation of the debt of developing countries. Why? Because the long-term debt of the Third World public powers to international banks reached 181.9 billion dollars in 2006. [2] Since August 2007, they have had to cancel a much higher sum, and this has not ended. ...

The big private banks have sinned three times:

  • they built disastrous mounts of private debt that have led to the current catastrophe;
  • they lent to the dictatorships and forced the democratic governments that succeeded them to repay in excess of every last cent of an odious debt;
  • they refuse to cancel the debt of some developing countries, despite the fact that its repayment implies the deterioration of the living conditions of the populations.

For all these reasons, it is necessary to hold them accountable for their maneuvers over the past decades. The governments of the countries of the South have to carry out audits of their debt, as Ecuador currently does, and repudiate all their odious and illegitimate debts. The bankers show that this is perfectly possible. It would be the first step to make finance play its rightful role, that of a tool at the service of human beings. Of all human beings.

Source: http://www.cadtm.org

* Damien millet He is the spokesperson for CADTM France (Committee for the Cancellation of Third World Public Debt, www.cadtm.org, author of Africa without debt, Icaria, Barcelona, ​​2008.

* Eric Toussaint is president of CADTM Belgium, author of Banco del Sur and new international crisis, El Viejo Topo, Barcelona, ​​2008 and Abya Yala, Quito, 2008

Translation: Griselda Pinero and Raul Quiroz

Notes:

[1] | The Goldman Sachs study service evaluated, on March 7, 2008, the losses at 1,156 billion dollars; George Magnus, from UBS, advanced in February a figure of more than a billion; Nouriel Roubini of New York University hypothesized a loss of at least $ 1 trillion

[2] | World Bank, Global Development Finance 2007


Video: WAIT UNTIL YOU SEE WHAT HAPPENED WHEN JERICHO AND ORANGE CASSIDY FACED OFF. AEW DYNAMITE 62420 (June 2021).